Fed Worries Tariffs Will Increase Inflation, Postpone Interest Rate Cuts

Federal Reserve officials at their January meeting agreed that more evidence of cooling inflation is needed before continuing to adjust interest rates. At the same time, they expressed concerns about the impact of the proposed tariff policies by President Donald Trump, which could delay future rate cuts. Fed Cautious About Inflation, Keeps Interest Rates Unchanged The minutes of the meeting released on Wednesday showed that the Federal Open Market Committee (FOMC) decided to keep the policy interest rate unchanged after three consecutive cuts in 2024, with a total reduction of one percentage point. FOMC members noted that the current monetary policy is 'less restrictive than significantly' before the rate cut, giving them more time to assess economic developments before making the next decision. They emphasized that if the economy continues to maintain full employment, the Fed needs to see a more significant decline in inflation before considering adjusting the federal funds rate range. Although inflation has shown signs of cooling, the Fed is concerned that the new government's trade policies could push prices higher, putting pressure on the 2% inflation target. FOMC members are particularly concerned about the possibility of businesses passing on the increased costs from tariffs to consumers, further complicating the prospects for monetary policy. Trump's Tariff Policy Increases Uncertainty President Trump has imposed some tariffs and threatened to expand them in the future. Speaking on Tuesday, he proposed a 25% tariff on cars, pharmaceuticals, and semiconductors, with a gradual implementation timeline throughout the year. Although not providing specific details, these measures could increase inflationary pressure and delay the Fed's interest rate reduction plan. Federal officials acknowledge “increased inflation risks” due to changes in trade and immigration policies, while warning about the impact of strong consumer demand. According to the meeting minutes, businesses in some areas have begun to find ways to shift the increased costs from tariffs to consumers, potentially pushing prices higher. In addition to the risks, the minutes also mention "significant optimism about economic prospects" due to expectations of relaxed regulatory policies and tax cuts. However, many economists believe that the new tariffs could exacerbate inflation, forcing the Fed to maintain a cautious monetary policy. Crypto Market Facing Volatility The prospect of prolonged high interest rates and increased inflation risks could put pressure on the financial markets, especially crypto. A high interest rate environment often makes risky assets like Bitcoin and altcoins struggle, as capital tends to shift to safer assets such as bonds and gold. However, if Trump really pushes for tariffs, this could trigger concerns about economic recession and boost demand for alternative safe-haven assets, including Bitcoin. Previously, Bitcoin has responded positively to economic instability and loose monetary policies, but with the Fed still maintaining a cautious stance, the outlook for the crypto market remains uncertain.

Currently, the market is pricing in the possibility that the Fed will cut interest rates in July or September, depending on the inflation outlook and the impact of trade policies. The federal fund rate is currently maintained at 4.25%-4.5%, and any signals from the Fed in the near future could strongly influence the price trend of Bitcoin and other risky assets.